British Airways will intensify its efforts to turn around its unprofitable operations in France and Germany after the acquisition of Air Liberté and the relaunch of Deutsche BA.
Air Liberté's fate rests in BA's hands after the commercial tribunal in Creteil finally approved BA's recovery plan, filed in conjunction with the Rivaud group, for the insolvent airline on 9 January.
But while Air Liberté's creditors are set to approve the deal, an unexpected obstacle has emerged which could still scupper the deal. The French independent Euralair has launched a judicial action against Air Liberté, alleging false accounting and disputing the validity of the March 1995 transaction in which Euralair leased 5,000 coveted Paris/ Orly slots to Air Liberté; Euralair now wants them back.
David Scowsill, BA's director Europe & Middle East, concedes that the writ is 'the only fly in the ointment'. He says that while the judge 'dismissed it at the hearing and basically told Euralair that they should not be contesting it while the airline is being saved', the issue has to be resolved for BA's plan to go ahead.
Euralair's 5,000 slots represent a quarter of Air Liberté's total holding at Orly. Besides this prized asset Air Liberté has little else to offer, apart from grossly underestimated debts. 'Air Liberté is said to have debts of FFr1.7 billion ($318 million), which are much higher than was imagined,' says Jeffrey Bouvet, president of the pilots' union, SNPL.
The debacle developing at Air Liberté should persuade BA against making a bid for ailing AOM, valued at FFr1 billion. 'BA has got enough on its plate with Air Liberté. What's more, AOM has far higher production costs than Air Liberté,' says consultant Bertrand d'Yvoire of Consultaire.
D'Yvoire speculates, however, than BA may feign interest in AOMin order to push Air France into acquiring the airline and its inherent problems. But Bouvet says were BA to take control of AOM it would be a heavy blow to Air France.
Other potential French bidders for AOM have yet to appear. D'Yvoire believes that that tour operator Nouvelles Frontières lacks the capital to make a bid. Brussels-based Virgin Express would 'look at AOM' when it is up for sale, according to chief executive Jonathan Ornstein.
Ornstein may have a wait on his hands. BA's Scowsill predicts that 'AOMmay not be sold for another one or two years'. The airline, which has to be sold by 1999 under European Commission state aid rules, is currently looking for private investors.
While complications mount in the French domestic market, BA's German affiliate is simplifying its strategy. Deutsche BA has introduced a new domestic strategy based around a single aircraft type. The carrier now operates high-frequency jet-only services using 18 Boeing 737-300s in single-class configuration on domestic trunk routes. DBA also slashed fares on its new services from Munich to Cologne and Hamburg and its existing Düsseldorf route in January, including a 30 per cent cut in its highest fare to DM520 ($335). Lufthansa responded in kind, including a 10 per cent cut in the full economy fare on Hamburg-Munich to DM750.
Ironically, as Lufthansa lowered fares in response to competition, a preliminary ruling by the Federal Cartel Office warned the carrier over pricing levels on its Frankfurt-Berlin monopoly route - which are 25 per cent higher than on routes of comparable length. The carrier says it will appeal if restrictions are imposed.
Source: Airline Business
